A lot of people are hesitant to buy used cars because they are unfamiliar with used car loans and they don’t know how to go about it. However, the process is also very similar to buying a new car. The amount of a used car loan and its interest rate are still affected by a number of key factors, including your credit score, your monthly income, the value of the car, the length of the loan, and your initial down payment.
New Car Loan vs. Used Car Loan: Which is Better?
There is no clear-cut answer to this question because it depends on your financial situation.
For instance, if you have a good credit score and a huge monthly income, you can most likely afford the premium that comes with a new car. There is nothing more satisfying than the smell of new leather while driving off the lot with your brand new car.
However, if you are a first-time car buyer or someone who has bad credit, a used car is a great option because you don’t need to put yourself through a financial struggle. A used car is also a more economical and environmentally-conscious option than a new car.
Regardless of whether you are buying a new or used auto, you should do your homework to make sure that you’ll pay the lowest possible interest rate for your loan.
Current Used Car Loan Interest Rates
The national average interest rates for car loans, regardless of whether the car is new or used, are between 4.5% and 10%. The rates vary depending on the type of loan you take, and whether you are financing the car through an online lender, a dealer, or a bank. The borrower’s credit score is also a major factor in determining the interest rate of a car loan.
To give you a rough idea, here’s a quick rundown of the hypothetical interest rates of a car loan, based on your credit score:
- (Excellent – 800 to 900) : 3.49%
- (Very Good – 720 to 799) : 3.99%
- (Good – 650 to 719) : 4.5%
- (Fair – 600 to 649) : 10%
- (Poor – 300 to 599) : 15%
The above mentioned interest rates are based on a $36,000 auto loan with a 10% down payment and a loan term of 7 years.
Used Car Loan Online Calculators
The loan amount, payment term, and interest rate vary from lender to lender and the type of vehicle that you are looking to purchase. To get a more accurate feel of what your monthly payment would be, it is best to check with your lender or visit your local dealership.
Alternatively, you can also use the following car loan online calculators to give you an estimate of what your interest rate would be if you finance a new or used car.
Frequently asked questions
How can I get a lower used car loan interest rate?
There are several ways how you can lower your used car loan interest rate. First, make sure that you are financing your used car through a reputable lender. Second, improve your credit score months before applying for the loan. Last but not the least, make a significant amount of down payment and use it as leverage to get a lower interest rate.
Can I get a used auto loan if I have bad credit?
Yes, you can get a used car loan even if you have bad credit. However, be prepared to pay a higher interest rate than a car buyer with excellent credit. The difference in interest rate can go as high as 12.5%.
How much money can I borrow for a used car?
The lender decides the maximum loan amount that you can borrow based on the type of car that you are buying and your credit score. Most used auto loan providers look at your risk-profile and credit score before deciding on the maximum loan amount.
If you are planning to buy a used car, make sure that you are financing it through a reputable dealer. The dealer will not only ensure that you are getting a high-quality used car but also a loan with the most competitive interest rate.